W7_Outline - is what you need to apply the gross profit...

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Accounting 306 Intermediate Accounting I Workshop 7 Outline I. Lower-of-cost-or-market (LCM) a. What is the rationale for LCM? Isn’t this is a departure from the historical cost principle? b. Compare cost (per FIFO, LIFO, average cost) to designated market value and record inventory at the lower amount. Designated market value is the middle of the following three numbers. Describe how to calculate each. i. Net realizable value ii. Replacement cost iii. Net realizable value less normal profit margin c. Entries to “write-down” inventory i. Show how to record inventory at market using the direct method. ii. Show how to record inventory at market using the indirect or allowance method.
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II. Relative sales value a. When is this used? b. How is it applied? III. Gross profit method a. Why might this method be used? b. What are the three necessary assumptions? c. How do you convert percentage markup on cost to gross profit on selling price (since this
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Unformatted text preview: is what you need to apply the gross profit method)? d. Show how the gross profit method works. IV. Retail inventory method a. Why is this a workable method for many big retailers? b. Know the relevant terminology. i. Markup ii. Markup cancellation iii. Markdown iv. Markdown cancellation c. Approaches differ in how to calculate the cost-to retail ratio. For each method below, show how to calculate such ratio. i. Conventional retail method (i.e., lower-of-cost-or-market approach) ii. Cost method iii. LIFO retail method iv. Dollar-value LIFO retail method d. How do you use the cost-to-retail ratio to calculate ending inventory at cost? V. Analysis of inventories a. Inventory turnover ratio b. Average days to sell inventory...
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W7_Outline - is what you need to apply the gross profit...

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